Dialogue with Cui Jianjun from Te Gao Information: The securities industry may be the first to give birth to large-scale applications of blockchain

This article is an original piece by Chain Catcher, authored by Gong Quanyu.
On October 21, Shanghai Stock Exchange Information Network Co., Ltd., a subsidiary of the Shanghai Stock Exchange, officially launched the Shanghai Stock Chain, providing "cloud-chain integration" foundational technical infrastructure for the market, supporting and servicing innovation in blockchain applications within the securities industry. Several securities firms have already participated in the research and development of the Shanghai Stock Chain and related scenarios.
Tegao Information is a blockchain technology support partner of the Shanghai Stock Exchange Information Network Co., Ltd., deeply involved in the entire design and development process of the Shanghai Stock Chain. Recently, Chain Catcher interviewed Cui Jianjun, founder and chairman of Tegao Information, and COO Chen Qing, to gain detailed insights into the application scenarios and design mechanisms of the Shanghai Stock Chain, as well as the application directions of blockchain technology in the securities industry. Below is the detailed dialogue:

Chain Catcher: When did Tegao Information start participating in the preparation and development of the Shanghai Stock Chain?

Cui Jianjun: Tegao Information is a technology company focused on underlying blockchain technology and application solutions. The core team comes from the School of Information at Fudan University, and we began researching blockchain technology from the perspective of commodity application traceability in 2016. In early 2019, Fudan University collaborated with the Shanghai Stock Exchange to conduct research on blockchain technology applications. We were fortunate to participate in blockchain performance testing for specific business scenarios such as securities log preservation, and we worked closely with the Shanghai Stock Information Technology team to design and test various application scenarios in the securities industry.

In the past two years, the landscape of blockchain development has changed continuously both domestically and internationally, but our entire team has remained focused on research in the securities industry. Before the launch of the Shanghai Stock Chain, there were already three sub-chains—preservation chain, copyright chain, and suitability management chain—operating with seven types of business, with the longest sub-chain having been in trial operation for several months.

Chain Catcher: You just mentioned that the Shanghai Stock Chain has already been applied in many business scenarios. Can you discuss the specific application logic?

Cui Jianjun: Blockchain is a new type of digital value registration and exchange technology, which is indeed very suitable for the securities industry. Although there have been many beneficial practices in the industry since 2017, overall, this field is just beginning. There are still many unresolved issues worth in-depth research and exploration, whether in underlying technology, business applications, or regulatory technology. Initially, we were not very confident, but after communicating with brokers and peers, we found that there are many rigid application scenarios that need to be solved using blockchain technology.

The first scenario of the Shanghai Stock Chain is the log preservation for brokerages. Brokerage firms need to preserve a large amount of logs daily, and regulatory authorities require these logs to be stored not only centrally but also off-site, with the characteristic of being tamper-proof, which is a significant headache for brokerages.

In the early days, we used to burn the logs onto CDs, and at that time, the log files might only be a few hundred megabytes, so the pressure of off-site storage and regulatory compliance was not significant. However, over the past decade, the volume of log data from brokerages has increased dramatically, and they can only use hard drives or cloud services for storage. Anyone can modify data on hard drives, and even with passwords on the cloud, data can still be altered, which undermines the tamper-proof nature of the data, thus weakening its effectiveness for regulatory authorities.

By adopting a solution that combines blockchain with sharding storage technology, we first index and slice the log files, then compress tens of thousands of records into a single file index for on-chain preservation, ensuring the files are tamper-proof while alleviating the pressure of off-site backup for large files. When a file needs to be "restored," it is similar to the current application scenarios of blockchain judicial preservation, where electronic evidence can be extracted on demand, providing a convenient and effective way for regulatory verification.

Chain Catcher: In the past, were brokerage firms unable to record these logs as valid evidence?

Cui Jianjun: With daily data exceeding hundreds of gigabytes, it is impossible to rely on intermediary organizations for "endorsement." The cost of off-site storage and verification alone exceeds the bearable range. Additionally, user data from third-party preservation poses risks in terms of commercial privacy protection. Another issue is that isolating and preserving information pulled from the complex backend of brokerage operations limits its judicial effectiveness.

Therefore, beyond traditional blockchain preservation technology, we are also trying to develop some extended applications for preservation. For example, we collaborate with brokerage firms to develop a blockchain preservation middleware technology that standardizes the preservation of all evidence subjects, timestamps, and event sequences before uploading them to the chain. This can link the causal relationships of events in routine business processes such as online product sales, agency sales, and risk disclosures in the securities industry, forming a coherent evidence chain with inherent logical relationships.

Chain Catcher: The blockchain product manager at Nasdaq has stated that the exchange is testing blockchain technology to tokenize its platform and issue stocks using blockchain technology. Are there similar plans for the Shanghai Stock Chain that you are aware of?

Cui Jianjun: Digital securities are a conceivable application direction for blockchain. After years of efforts, China's securities and financial industry has completed the transition to paperless and electronic securities. However, in the digital age, the form of securities can be "programmable" digital certificates, which are digital securities. Digital securities registered on the blockchain represent various trustworthy digital certificates such as stocks, bonds, derivatives, and even physical alternative assets. After introducing central counterparties and liquidity-saving mechanisms, they can even be traded directly on a peer-to-peer basis. Digital currencies and smart contract technology can also bring new imaginative possibilities for digital securities, such as automatic cash flow aggregation and payments.

Nasdaq has been attempting to create a blockchain-based equity issuance platform since 2015, promoting blockchain registration and issuance for small equity financing projects. This is meaningful exploration, but the implementation difficulty was significant at the time, inevitably causing major impacts and adjustments to the existing systems in terms of technology, management systems, and design architecture. Moreover, from the current perspective, the technical implementation does not match the characteristics of China's securities market.

In July of this year, the China Securities Regulatory Commission also issued a notice agreeing to pilot blockchain equity registration in regional equity trading markets in Beijing, Shanghai, Zhejiang, and other areas. We have noticed that some local equity trading centers have adopted pilot schemes for native implementation of equity registration and trading on the blockchain, which are more extensible and technically robust compared to foreign securities industry solutions. This shows that our industry regulatory authorities have sufficient innovative tolerance and foresight regarding the application of digital securities technology.

Chain Catcher: What does native implementation refer to?

Cui Jianjun: If blockchain technology is merely treated as a distributed ledger, data is still generated, circulated, and stored in the original system, with only the results written to the chain. This means that blockchain serves as an external recording carrier, and blockchain technology can only remain at the application level of traceability. Digital assets heavily rely on "native" characteristics, where all native data related to the assets is directly registered, circulated, and used on the blockchain. This means that data is on the chain at the moment of creation, rather than being anchored by off-chain information. This way, both on-chain and off-chain data can be penetrated and traced, allowing for self-certification and third-party certification.

Once native implementation of digital assets is achieved, data sharing and trading become possible. Currently, many are building and using big data trading centers, and the method of data rights confirmation is a perplexing issue, primarily because the native characteristics of data have not been resolved.

Chain Catcher: You have mentioned the distinction between the main chain and sub-chains multiple times. What are the differences in their functions and positioning? Why design it this way?

Cui Jianjun: Due to the performance limitations of blockchain, it is certain that no single chain can carry all business; there will definitely be scenarios where thousands of chains coexist. Therefore, we recommend designing a main chain and sub-chains. Sub-chains are responsible for running specific businesses, and a new sub-chain can be created for each new application scenario. Each sub-chain is relatively independent but needs to have an account on the main chain.

The main chain serves more as an on-chain resource management platform, responsible for overall security and resource planning, not running specific businesses, asynchronously locking sub-chain information, and constantly monitoring the healthy operation of sub-chains. Additionally, the main chain of the Shanghai Stock Chain has a governance committee, with members determined by the number of nodes, who can collectively discuss governance rules, smart contract reviews, and more.

This design is primarily for security reasons, to avoid situations where issues with a specific business or lack of coordination lead to a breakdown of trust in the entire chain.

Another reason is commercial privacy protection. Each sub-chain's business scenario has a few initiators and participants who have invested significant resources and costs to explore. They act as pioneers, and from the perspective of protecting innovation and ecological incentives, first movers will inevitably have some advantages in terms of resources within the business sub-chain. However, we are still exploring other governance methods to balance commercial privacy protection and resource ecological sharing as much as possible.

Chain Catcher: For businesses like blockchain preservation, many consortium chains like Ant Chain have already launched similar services for the financial market. What are the advantages of the Shanghai Stock Chain?

Chen Qing: Currently, the threshold for using blockchain technology is relatively high. Enterprises independently conducting blockchain application pilots often require investments of hundreds of thousands of yuan. From the perspective of providing a trustworthy environment and reducing the innovation threshold and resource consumption for brokerages, whether it is BaaS services provided by internet companies or specialized chains offered by core industry institutions or technology service providers, they all aim to achieve the same goal.

Blockchain, as a unique technology suitable for distributed governance architecture, has value in breaking down information barriers between enterprises and activating the potential for industry cooperation. However, it is essentially a technical tool that cannot be divorced from industry rules, participants, and application scenarios.

The special position of the Shanghai Stock Exchange as a core industry institution lies in its ability to unify connections with regulatory authorities, judicial institutions, and impartial organizations in the securities industry, forming a "trusted alliance in the securities industry." Brokerage firms and participants can freely and autonomously engage in innovative collaboration, fostering new innovative businesses. Based on the Shanghai Stock Chain, various financial innovation businesses can establish standards in products, technology, and regulation, providing the industry with trustworthy preservation, smart contracts, identity authentication, data security, technical training, and other solutions that are closely aligned with the securities industry ecosystem.

Chain Catcher: Similar to past interactions with various cloud computing and artificial intelligence technologies, could blockchain potentially have a more thorough transformative impact on the securities industry?

Chen Qing: From the perspective of development potential and future impact, blockchain technology is at least on par with previous technologies. These technologies also develop symbiotically and promote each other. The Internet of Things technology has developed for 12 years since 2008, and the price of sensors has indeed dropped by more than 100 times. However, the birth and integration of cloud computing, big data, and artificial intelligence have been the decisive factors for the leapfrog development of IoT technology applications.

The same applies to blockchain technology. Although significant results may not yet be evident in its current development, the application prospects in the securities industry are promising. It is recommended to start by improving the regulatory framework for the securities market and enhancing the operational management efficiency of the industry, gradually stepping into core innovative fields such as asset securitization and digital securities, in conjunction with the application of other emerging technologies. Tegao Information also has teams in specialized fields such as IoT, big data, and FPGA, always focusing on solving application scenarios in the securities industry through multi-technology integration, exploring experiences for the future digital new infrastructure of the financial industry.

Chain Catcher: The implementation of blockchain applications has always been a pain point in the industry. Based on your years of exploration experience, what do you think is the biggest difficulty in achieving implementation?

Cui Jianjun: Over the years, blockchain has carried too many ideals and has received enthusiastic attention from capital and industry. Various accolades still cannot conceal the awkwardness of blockchain having few significant applications beyond Bitcoin and Ethereum. The most challenging aspect of blockchain entering the physical industry and business scenarios lies precisely in the need to break away from "utopian" fantasies and find a core institution that can both carry industry credit and control industry data to act as the "alliance" initiator, completing the cold start phase from 0 to 1.

The securities industry may be the first to see large-scale applications of blockchain. The Shanghai Stock Chain possesses excellent and unique industry resources and attributes, and we hope our efforts can contribute to the development of the blockchain industry.